Natural-gas futures close near a six-week low

Crude prices decline, but refinery woes lift gasoline futures

SAN FRANCISCO (MarketWatch) -- Natural-gas futures fell Thursday to register their weakest closing level in almost six weeks with overall U.S. inventories of the fuel more than 13% above their five-year average despite a sizable decline in last week's supplies.

"With around four weeks left in the withdrawal season, there isn't much on the horizon to cause any concern," said Ben Smith, president of First Enercast Financial, in e-mailed comments. "Weather forecasts are calling for mild temperatures through the remainder of March."

Meanwhile, crude-oil futures fell after closing out the previous session near a one-week high. The Energy Department on Wednesday reported a surprise fall in U.S. crude inventories for last week as well as declines in both gasoline and distillate supplies.

Natural gas for April delivery closed down 1.7%, or 12.7 cents, at $7.239 per million British thermal units on the New York Mercantile Exchange, but near the day's high of $7.26. The contract hasn't closed at a level this low since Jan. 29.

Prices had touched a low of $7.15 following the supply data's release, the contract's weakest intraday level since March 1.

'Starting this weekend, we expect to see significant warming trends across the nation pushing demand down. Perhaps this is the last hurrah for winter 2006-2007.'
Beth Sewell, Quantum Gas &amp; Power Services

Next week's natural-gas supply report "may possibly be more significant given the weather in the northeastern consuming regions," said Beth Sewell, manager partner at Quantum Gas & Power Services Ltd.

And as far as the outlook goes, "starting this weekend we expect to see significant warming trends across the nation pushing demand down," Sewell said in e-mailed comments. "Perhaps this is the last hurrah for winter 2006-2007."

Fimat USA had expected a decline of 99 billion cubic feet, while Global Insight had pegged the week's drawdown at 105 billion cubic feet and analysts at Strategic Energy & Economic Research had foreseen decline of 96 billion cubic feet.

That compares with a drop of 97 billion cubic feet a year ago and a five-year average decline of 117 billion cubic feet, they said.

Total U.S. gas in storage now stands at 1.631 trillion cubic feet, down 268 billion cubic feet from the year-ago level but 194 billion cubic feet above the five-year average, the government data showed.

"Both natural gas supply and demand have been extremely high over the past month," said Enercast's Smith. "It looks like gas production jumped to meet the recent surge in demand, which has helped keep prices relatively stable."

But "if supply continues to remain this strong as we move into the shoulder months [between the heating- and cooling-demand periods], it could substantially increase the downside price risk in natural gas," he said.

On the other hand, "the weather could still surprise and it is still uncertain what storage will look like once the season ends," said John Kilduff, analyst at Fimat USA, in a morning note to clients. And even with a "respectable base" of supplies, the market probably "won't be spared the effects of the hurricane season, two years in a row."

Crude futures lose ground

The energy market digested an across-the-board decline in last week's U.S. petroleum supplies and a gain in prices of nearly 2% on Wednesday.

Crude for April delivery closed down 18 cents at $61.64 a barrel. On Wednesday, the contract closed up $1.13.

The gains Wednesday came as the Energy Department said the nation's crude supplies dropped 4.8 million barrels to a level of 324.2 million barrels for the week ended March 2, running counter to most analysts' expectations of an increase for the third week in a row. Crude inventories are now down 5.1% from a year ago, according to the data.

At the same time, motor gasoline supplies fell 3.8 million barrels to stand 3.9% below year-ago levels, the data showed. And distillate inventories, which include heating oil, fell 1.3 million barrels, putting them 8.4% below the level seen a year earlier. See full story.

Most of the week's drawdown in crude "was concentrated in the Gulf Coast, where imports fell 9% due to the temporary closure of the Houston Ship Channel. Look for imports to play catch up next week," said Doug Leggate, analyst at Citigroup, in an e-mailed research note.

Refinery woes boost gasoline

Also on Nymex, April heating oil dipped 0.61 cent to close at $1.7613 a gallon. But April reformulated gasoline futures were the lone winners in the petroleum market, closing up 3.06 cents at $1.9261 a gallon.

Refinery maintenance and repairs have been supporting gasoline prices lately. The Energy Department on Wednesday said refinery utilization fell to 85.8% of capacity last week from 86% the week before.

Valero said in late February that it'll resume partial plant operations by early April at its McKee refinery in Sunray, Texas, Dow Jones reported. Valero had completely shut down the 158,000 barrel-per-day refinery following a fire on Feb. 16.

"We have had a run of bad luck with refineries at a time when gasoline demand is near record highs," said Phil Flynn, a senior analyst at Alaron Trading, in e-mailed comments.

The average price for a gallon of regular gasoline continued to climb Thursday. It was last at $2.507, up 15% from a month ago, according to data from AAA's Daily Fuel Gauge Report. See the data.

Overseas, the oil market found little support from news that the International Atomic Energy Agency approved the suspension of almost two dozen nuclear technical aid programs to Iran. The decision was part of the U.N. sanctions imposed on Iran because of its refusal to halt its nuclear program, according to the Associated Press.

In Thursday's equities trading, benchmarks tracking oil-related shares were mainly higher, with the Oil Service Index
OSX, +0.45%
chalking up the biggest gains. See Energy Stocks.

And in other commodities trading, gold futures registered their third-winning session in a row on strength in global stock markets. See Metals Stocks.

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